Mexico's GDP Growth is Slowing Down

Although, in the fourth quarter, Mexico maintained steady growth, there are clear signals that the economic expansion may be slowing down. Indeed, domestic demand has been showing signs of deceleration and exports remain weak.
Duarte Ricardo | 5/10/2013 3:47:43 PM

In fact, although in April consumer confidence increased, it stood below the optimism level of 100 points, indicating that consumers still remain pessimistic about the current economic situation and prospects for the coming months. In addition, in February, retail sales unexpectedly declined 2.6 percent yoy, the first contraction since last December. Moreover, in March, industrial output contracted 4.9 percent yoy, the biggest decline since October of 2009. To make things even worse, in March, exports decreased 1.8 percent yoy, mostly due to a 19.8 percent fall in the shipments of oil and related products. On the positive side, on April 26th, the Bank of Mexico decided to maintain the benchmark interest rate at the record low of 4 percent and signaled the possibility of future interest rate cuts, despite the fact that since March inflation has been above its upper limit of 4 percent. Furthermore, on May 8th, the rating agency Fitch raised Mexico´s foreign currency debt rating to BBB+, as it considers that the new government and Congress will reach an agreement to approve the necessary structural reforms aimed at increasing the tax base and opening state-controlled energy sector. This decision came only two months after another rating agency, Standard & Poor´s, has lifted Mexico´s outlook to positive.


In the fourth quarter of 2012, the GDP expanded 3.2 percent over the same quarter of the previous year, as strong domestic demand offset weaker exports. On a quarter over quarter basis, the economy grew 0.77 percent, up from the 0.38 percent registered in the third quarter.
In April, the Consumer Confidence Index rose to 95.73 points, from 95.38 in the previous month. Nevertheless, in February, retail sales decreased 2.6 percent over the same month of the previous year, the biggest contraction since December of 2009.

In March, exports decreased 1.8 percent to $31834 million from the $32414 million registered in the same month of the previous year. Nevertheless, Mexico´s trade surplus widened 8.8 percent to $1714 million from the $1575 million registered in March of 2012, due to a 2.3 percent fall in imports.
In the 12 months through April, the inflation rate rose 4.65 percent, the biggest increase since last October. Yet, on April 26th, the Bank of Mexico kept the key policy interest rate at 4 percent, as it considers the recent rise in consumer prices to be temporary.